IMF sees global growth slow to 3.1% in 2026 amid downside risks

Global economic growth is projected to slow from 3.5% in 2025 to 3.1% in 2026 before recovering to 3.4% in 2027, according to the International Monetary Fund’s (IMF) October World Economic Outlook. The 2026 forecast is unchanged from April, while the 2027 projection was raised by 0.2 percentage point.

Global headline inflation is forecast to rise from 4.1% in 2025 to 4.7% in 2026, driven mainly by higher energy and food prices, before easing to 4.1% in 2027.

Why has the global economy remained resilient?

Strong investment linked to artificial intelligence, flexible supply responses, inventory drawdowns and businesses’ ability to adapt have helped cushion the impact of geopolitical and trade shocks. The IMF said these buffers have supported activity so far, but their ability to absorb further disruptions is becoming increasingly limited.

The technology investment boom has provided an important source of demand, while economies have also benefited from rerouted shipments, fiscal support and lower energy intensity.

However, the benefits have been uneven.

Energy-importing economies with limited links to the technology value chain face the most difficult conditions, including higher import costs, exchange-rate pressures, weaker real incomes, tighter fiscal space and fewer sources of offsetting demand. Many low-income and vulnerable countries fall into this group.

Downside risks remain elevated

The IMF said risks to the outlook remain tilted to the downside.

A prolonged stalemate or further escalation in the Middle East could keep energy and food prices elevated, revive inflationary pressures, weaken fiscal and external balances and weigh on growth.

Further disruptions to energy infrastructure, cyberattacks and extreme weather events could amplify those effects.

A reassessment of expectations around AI profitability and productivity could also reduce investment, trigger equity-market corrections and tighten financial conditions, particularly for economies closely integrated into technology supply chains.

Fiscal vulnerabilities and renewed trade tensions pose additional risks to growth.

On the upside, AI-related investment could prove more persistent and productivity gains could materialize faster than assumed. New trade arrangements could improve predictability and resilience, while higher fossil-fuel prices could accelerate investment in energy security.

IMF calls for governments to rebuild fiscal space

The IMF said governments need to rebuild fiscal space as elevated debt, rising sovereign yields and growing spending requirements reduce their room to respond to future shocks.

It called for credible fiscal adjustment plans combining revenue measures, spending rationalization and institutional improvements.

During cost-of-living crises, governments should preserve price signals and rely primarily on temporary, targeted income support for vulnerable households.

The IMF found that broad-based price-suppressing measures are a costly and inefficient way to protect households, while targeted transfers can provide protection at substantially lower fiscal cost.

Support aimed at cushioning higher food and energy prices should also be temporary, targeted and should not jeopardize fiscal sustainability.

Corporate tax cuts can create global spillovers

The IMF also examined the international effects of corporate income tax policy changes, finding that their impact depends partly on how governments adjust their budgets.

Debt-financed corporate tax cuts can support domestic activity but crowd out investment in other economies and generate negative spillovers abroad in the short term.

Over time, those spillovers can become positive through cross-border knowledge transfers.

However, lower tax revenues can constrain domestic public investment and productive capacity, particularly in emerging market and developing economies that rely more heavily on corporate income tax revenue.